ROI tells you the payback time
The ROI (return on investment) indicator, which is familiar to investors, is also a good tool for assessing the profitability of investing in insulation. The ROI, as the name implies, tells you how much you get return on your investment.
The return on investment is calculated using the following formula:
ROI = savings in heating costs achieved / money invested x 100%
The estimate of the payback period calculated for the insulation investment could look like this, if the cost of insulation were € 10,000 and the savings in heating costs were € 4,000 per year:
Savings € 4,000 / year
Investment € 10,000
ROI = € 4,000 / € 10,000 x 100% = 40%
This means that 40% of the investment would pay for itself during the first year. At this rate, the total payback period would be 2.5 years, after which the investment in insulation would save € 4,000 each year.
Information needed to calculate savings and investment
In order to calculate the annual savings and the amount of investment in the calculation formula above, more detailed information is needed.
In order to determine the exact investment costs, it must be included
- interest and maintenance costs.
It may be challenging to estimate the cost of installation work in advance, as contract execution prices vary.
In order to find out the annual savings, the following information is needed:
- the price of energy
- the average temperature of the object to be insulated
- thermal conductivity of the insulation material.
In estimating the savings in heating costs, we have used an energy price of € 0.03 / kWh, which is an average of several years. At the moment, however, we are already in higher readings, so using this figure, the calculation gives a reasonably conservative estimate.
In addition, in order to assess overall profitability, it is necessary to know
- expected service life of the object to be insulated
- annual operating time
- heat loss costs during the expected service life.
The carbon tax and emissions trading will further increase the profitability of insulation investments
As part of the savings potential, the carbon tax that companies have to pay must also be taken into account. It has risen sharply in recent years and is likely to continue to rise. The amount of the tax is determined by the method of energy production: for coal, for example, the taxes are high, so for those who use it, the savings from insulation investment are very significant, while for those who use renewable energy, the savings are smaller. In any case, regardless of the form of energy production, emissions and the amount of the carbon tax will be reduced due to insulation.
Companies that are covered by the EU Emissions Trading System can achieve even more savings. The quotas for emissions are decreasing year by year, and reducing this excess by insulating is practically direct money for companies.
TIPCHECK tells you the payback time for an insulation investment
The impartial TIPCHECK audit offered by Kespet is a reliable way to calculate the payback time and savings potential of insulation. It takes into account in detail all the relevant factors that contribute to the energy savings achieved through insulation.
The TIPCHECK calculation tells you if it is worth investing in insulation, and in most cases it is. Although the TIPCHECK audit itself does not require anything, according to EiiF (European Industrial Insulation Association), 75% of audits lead to insulation investments. They have been able to show that improving insulation saves money and energy and reduces CO2 emissions – and best of all, with short payback periods.
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